Paychex 2012 Annual Report Download - page 78

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PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In the normal course of business, the Company makes representations and warranties that guarantee the
performance of services under service arrangements with clients. Historically, there have been no material losses
related to such guarantees. In addition, the Company has entered into indemnification agreements with its
officers and directors, which require the Company to defend and, if necessary, indemnify these individuals for
certain pending or future claims as they relate to their services provided to the Company.
Paychex currently self-insures the deductible portion of various insured exposures under certain employee
benefit plans. The Company’s estimated loss exposure under these insurance arrangements is recorded in other
current liabilities on the Consolidated Balance Sheets. Historically, the amounts accrued have not been material.
The Company also maintains insurance coverage in addition to its purchased primary insurance policies for gap
coverage for employment practices liability, errors and omissions, warranty liability, theft and embezzlement,
and acts of terrorism; and capacity for deductibles and self-insured retentions through its captive insurance
company.
Note N — Related Parties
During fiscal years 2012, 2011, and 2010, the Company purchased approximately $2.6 million, $5.7 million,
and $3.2 million, respectively, of data processing equipment and software from EMC Corporation. The
Chairman, President, and Chief Executive Officer of EMC Corporation is a member of the Company’s Board.
During fiscal years 2012, 2011, and 2010, the Company purchased approximately $1.8 million, $1.8 million,
and $1.5 million, respectively, of office supplies from Staples, Inc. The President of Staples North American
Delivery is a member of the Company’s Board.
Note O — Quarterly Financial Data (Unaudited)
In millions, except per share amounts
Three Months Ended
Fiscal 2012 August 31 November 30 February 29 May 31 Full Year
Service revenue ........................... $552.0 $535.0 $558.5 $540.7 $2,186.2
Interest on funds held for clients .............. 11.1 10.7 11.0 10.8 43.6
Total revenue ............................. 563.1 545.7 569.5 551.5 2,229.8
Operating income ......................... 229.7 217.9 210.4 195.9 853.9
Investment income, net ..................... 1.5 1.5 1.6 1.8 6.4
Income before income taxes ................. 231.2 219.4 212.0 197.7 860.3
Income taxes ............................. 82.3 79.0 76.6 74.4 312.3
Net income .............................. $148.9 $140.4 $135.4 $123.3 $ 548.0
Basic earnings per share(1) ................... $ 0.41 $ 0.39 $ 0.37 $ 0.34 $ 1.51
Diluted earnings per share(1) ................. $ 0.41 $ 0.39 $ 0.37 $ 0.34 $ 1.51
Weighted-average common shares outstanding . . 362.2 362.4 362.5 362.6 362.4
Weighted-average common shares outstanding,
assuming dilution ....................... 362.8 362.8 363.1 363.4 363.0
Cash dividends per common share ............ $ 0.31 $ 0.32 $ 0.32 $ 0.32 $ 1.27
Total net realized gains(2) ................... $ 0.1 $ 0.1 $ 0.4 $ 0.4 $ 1.0
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